Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

10% Holder A
50% Holder B
10% Holder C
10% Holder D
20% Holder E
Then, the agent would be required to apply some financial status tools to Holder B, and would
have the option of analyzing holders A, C, D, and E. Remember that when dealing with multiple
entities, indirect ownership may exist where grouping may be necessary. To illustrate, suppose A,
C, D, and E were all owned by separate corporations who were all owned by some sixth party, F,
then F would be considered a mandatory financial status focus individual.
Of the examinations conducted by the project group in Los Angeles, examiners did not encounter
automobile dealerships having a large number of independent stakeholders, but the possibility
does exist.
Type A Analysis
A Cash T performed with the help of Bureau of Labor Statistics (BLS) information can show an
apparent initial understatement which may act as a flag that one should more fully develop the
income issue. Used car dealers may not have all the controls the new dealers have and tend to use
currency quite a bit in their business operations. Accordingly, income is a potential issue.
A comparative analysis can yield paradoxical information that signals either an understating of
receipts, or an overstatement of expenses OR BOTH. In the scenario on the following pages,
Gross Receipts rise rapidly but Gross Profit percentages decline. The two would appear to be
inversely related, or negatively correlated. The paradox is that the taxpayer continues to grow
when it does not seem in his best financial interests to do so.
A used car dealer’s revenues and expenses are usually tightly and positively correlated. With this
in mind it is important to look at the Gross Profit Percentage (GP%) as an indicator considering
such market fluctuations.
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